The Best Ideas Of Over $1 Trillion In America's Best Investment Advice

When financial markets erupt in turmoil, is a panicked trade you make that feels good for the ten minutes after you sell still going to feel good ten years from now?


That's the question Patricia Brennan, CEO of Key Financial, and America's 15th ranked women wealth advisor according to Forbes and Shook Research, asks her clients in times of economic tumult. More often than not, the long-term answer is to do nothing and stay the course. This is how America's top financial advisors keep the over $1 trillion in assets they oversee safe and on a smart path, no matter how uncertain times may be.

At Forbes and Shook Research's inaugural Top Advisor Summit at the Wynn in Las Vegas, America's top 200 managers opened up their playbook on how they oversee their clients assets when markets are scary or ebullient.

Brennan of Key Financial says one of her key principles is the rule of "10, 10 and 10." Will a trade that feels good for the next ten minutes feel good in 10 months? And how will it feel in 10 years? The answer is normally to keep on course.

“Pain is inevitable, suffering is optional,” Brennan says of market volatility. "Our role as advisors is to make sure we do whatever we can to make sure our clients don’t suffer.” Pain may be watching a 10%-to-15% market decline. Suffering may be altering long-term plans during the tumult, selling assets at a bottom and missing an eventual recovery.

Added Bank of America Merrill Lynch's Jeff Erdmann, Forbes and Shook Research's #1-ranked advisor, maintaining a top practice means thinking inter-generationally about wealth. Priorities and wealth plans are not a cookie-cutter, and they differ between generations. As trillions of dollars in wealth are transferred to a new generation,  the advice and investment plans he offers is also changing.

Though the long-term always comes first for America's top wealth advisors, that's not to say these rainmakers don't have unique insights top bring to their clients.

When the government moved to rescue banks at the 2009 market bottom, Steve Hefter, Forbes and Shook Research's 18th ranked advisor at Hefter, Lesham, Margolis Capital Management of Wells Fargo Advisors, decided the government's commitment to stabilize the financial system meant bank preferred stock was a "once in a lifetime opportunity." Hefter's clients bought the preferred shares of banks like JPMorgan, Bank of America and Citigroup, often at steep discounts to their par value, and were well rewarded when the system did recover.

“It was the opportunity of the lifetime,” says Hefter. Now the pitch for preferred shares isn't nearly as fat, but Hefter remains a bull on these assets.

He recommends variable rate adjustable preferred shares, particularly to risk averse clients who are still sitting on the sidelines. These assets carry the safety of bonds and particular tax advantages, but they also come with some equity upside. “We think they are a great alternative to bonds and stocks,” says Hefter. "We use preferreds to get frightened cash off of the sidelines. They are kind of like the training wheels to get back into the market.”

Other top managers like Morgan Stanley's Shelley Bergman and Raj Sharma offered their own picks. Sharma, Forbes and Shook Research's 17th-ranked advisor, recommended an overweight position in European banks, which he said have de-leveraged but continue to trade at steep discounts. With a ten-year horizon, Sharma said India will fulfill its promise as one of the world's premier emerging markets.

Bergman, Forbes and Shook Research's 12th-ranked advisor, believes strongly in providing his clients an actively managed portfolio. Right now, Bergman is tilting 30% of his portfolio towards emerging markets on the expectation of a currency rebound and a revival in growth. The U.S. dollar rally may be long in the tooth, meaning those who allocate into recovering markets like Brazil may see an extra benefit.

In conjunction with insight from from America's top advisors, some of the world's savviest investors and strategists convened in Las Vegas to give their perspective on markets and investor behavior.

Brian Levitt, senior investment strategist of Oppenheimer Funds, offered a sunny outlook on the long-term trends of the U.S. economy, despite a harsh 2016 election year and deep political divisions nationwide. In fact, Levitt offered evidence markets don't move much on political turbulence. His research shows markets do best when a president's approval rating is between 35% and 50%. “Hating the government is not an investment strategy,” Levitt says.

Despite a drumbeat of negative headlines about government debt and the trade deficit, Levitt offered a sanguine outlook on the health of the U.S. Despite $20 trillion in national debt, Levitt valued federal government asset at between $200 trillion and $300 trillion and called the idea of a looming bankruptcy "hyperbole." Demographics in the U.S. will help the country over the next few decades as millenials form households and enter the home buying market. The so-called 'Japan-ization' of the U.S. is overwrought, Levitt said, citing an average age of around 37 in the U.S. versus over fifty in Japan.

The market's current price-to-sales ratio is "a little bit rich," Levitt says, but he is still looking at fixed income as the best forward looking indicator of market health.

As the Federal Reserve enters a rate hiking cycle, growth and inflation will need to keep pace. If President Trump isn't able to accomplish growth-boosting initiatives like tax reform and infrastructure spending, there is a risk the economy won't keep up with the Fed. Levitt will be watching the shape of the yield curve. If policy gets stuck and there is no growth boost, you could see a flattening of the yield curve. "We are going to need to see pro-growth policies carry through, or else the Federal Reserve will have to back off.”

In the late morning, Oaktree Capital's Howard Marks and Joel Greenblatt offered a clinic on investing with discipline and patience when markets get overheated.

“The greatest challenge that everyone in this room faces is we are in a low return world,” Marks said. “All assets have appreciated thanks to the Federal Reserve's cheap money regime. All assets should be expected to offer lower returns going forward,” Marks added. Greenblatt, who does a bottoms-up analysis of the S&P 500 Index and Russell 2000 Index, said that equity markets are in 80th percentile and 90th percentile of expensiveness. Stock market returns in the next year are likely to be well below historical averages.

But both investors aren't fretting a market that doesn't offer too many fat pitches because over the long-term manias of over-exuberance or unnecessary depression always play into the hands of disciplined investors. "The important thing is to not get caught up in emotions -- knowing emotions exist but not getting caught up and being cold, hard and calculating on valuation -- that is the secret," Greenblatt said.

"Most people, including most people in the investment business, don't have the opportunity to take advantage of market opportunities. We get excited when prices are high and we get depressed when prices are low,' said Marks. "I spend most of my time trying to figure out what the temperature of the market today says about investor discipline. Without guessing about the future, I think you can adjust the offensiveness or defensiveness of a portfolio based on what you see in the marketplace."

Right now, Marks is preaching prudence. “People ask me all the time are we in a high yield bond bubble. I say no we are in a bond bubble,” he said. Investors expecting 8%-to-10% returns from public credit are due to be disappointed by the 2%-to-5% returns that more likely in the current environment.

In the afternoon, BlackRock's Rick Rieder echoed caution on bonds and expressed a view that equities and the .S> economy may surprise to the upside over the next few years. “Velocity is starting to improve and it is incredibly powerful,” he said in a whirlwind 30-minute presentation that covered trends in trade, global fixed income, and equities. "We are in a dynamic where I think growth is going to be very powerful and I don’t think the equity market has priced it in.”

Rieder is cautious on fixed income because there is a glut of demand for bonds and limited new supply, or sellers of assets. This means that despite the Federal Reserve's rate hiking, bond yields will likely remain low for a long time. He expects the 10-year Treasury note to fluctuate between 2.25% and 2.3%.

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